Shutdown could cost up to $24B

Oct. 18, 2013 - 09:37AM
|

Sen. Ted Cruz, R-Texas, spearheaded GOP efforts to defund the Affordable Care Act, which led to a partial shutdown of the federal government. Estimates of the shutdown range from $12 billion to $24 billion for the U.S. economy, or as much as $1.5 billion per day, and as many as 250,000 jobs. (Bendan Smialowski / AFP)

Related Links

The 16-day government shutdown cost the economy jobs, delayed mortgages and lost retail sales — at least $12 billion worth, and maybe as much as $24 billion.

As federal workers returned to work Thursday, statisticians and business people began toting up the damage:

■ Estimates of the toll range from $12 billion to $24 billion for the U.S. economy, or as much as $1.5 billion per day, and as many as 250,000 jobs. The shutdown trimmed fourth-quarter growth by 20 percent, economist Joel Naroff said — an outcome any business would "consider a disaster.''

■ At least 400,000 government employees will be paid for all 16 days they didn't work and roughly the same number will get paid for not working during part of the shutdown. The government has not disclosed that cost.

■ Consumer confidence plunged. The Bloomberg Consumer Comfort Index fell to its lowest level since March in data released Thursday. The share of people predicting economic conditions will get worse fell faster than at any time since the 2008 collapse of investment bank Lehman Bros. One result: Hyundai's CEO John Krafcik said this week that October car sales could drop about 10 percent.

■ The U.S. Travel Association said the shutdown cost $152 million a day in lost travel and related activity. Federal parks were closed, accounting for much of the losses. Washington-area hotel occupancy dropped 9 percent from late September levels in the first week of October, according to Destination D.C.

In Colorado Springs, home of the Air Force Academy, all six group events scheduled at Edelweiss Restaurant the past couple of weeks were canceled, reducing the eatery's revenue by about 10 percent, says owner Deiter Schnakenberg.

■ The Mortgage Bankers Association of America said applications for mortgages dropped 7 percent last week, to the lowest levels seen since 2007. "The government shutdown had a notable impact on the mortgage market last week," the association said.

"Most of (the economic damage) comes from government employees and contractors not doing their jobs," said Paul Edelstein, director of financial economics at consulting firm IHS. ``Then maybe there's a loss in people not doing some spending they would have, or delaying. It's a real noticeable hit to the economy, more so because we weren't growing that fast to begin with.''

Federal contractors will take a major hit, since many companies that laid hundreds of thousands of people off won't be able to pay them back wages. One example: Herndon, Va.-based logistics provider EDJ Associates, which furloughed about a dozen of its 45 employees, said Vice President David Moretti.

"It's difficult because unlike the federal government, we're not able to pay them back for the time they didn't work," he said.

The impact on retailers may last into the crucial holiday season, said National Retail Federation chief economist Jack Kleinhenz — especially because the short-term deal reached by Congress and the White House may spark another showdown in early 2014.

"We know in some areas there is less foot traffic," especially at car dealerships, Kleinhenz says.

The closing of federal offices that handle mortgages, small business loans and certain permits, along with disrupted tourism, cut about $7 billion from the economy's fourth-quarter growth, Moody's Analytics chief economist Mark Zandi said.

In Dallas, Coldwell Banker Realtor Ron Burch said one of his sales is on hold because his client couldn't reach workers at the Veterans Affairs for help with a VA-insured mortgage. In Washington, Coldwell's David Bediz said a client put a contingency in a home-buying contract that the deal could only close once the shutdown ended.

The shutdown affected high finance as well. Goldman Sachs chief financial officer Harvey Schwartz said tension over the talks helped freeze clients of the investment bank, which announced Thursday that it missed third-quarter revenue forecasts by about $600 million.

"Activity from the client base was picking up pretty much really broadly in the early part of September, but then of course people got very focused on the government debate,'' Schwartz said on a conference call with stock analysts. "It was still an environment of uncertainty.''

Economists expect the recovery to regain momentum within six months, much as the economy accelerated by mid-1996 after a shutdown ended in January, Edelstein said. But Beth Ann Bovino, chief U.S. economist at Standard & Poor's, suggested that with another deadline already set, government workers who get reimbursed for lost wages may not feel like spending them.

"They'll get it back, but with the uncertainty about what will happen in a few months, they may want to keep a cushion,'' she said.